Can someone tell me the best type of loan to get inorder to finance the purchase of stock? Will a bank loan me the full amount of the purchase price of the stock? It's about $20,000. I need to do it quickly, so I don't want to wait several days for a home equity line. Thank you.

Banks and brokerages are limited to advancing 50% of the value of the stock when the loan is to purchase the stock. This is because the value of the stock fluctuates and creates risk for both the lender and the borrower. If you have other stocks to pledge you may be able to borrow more.

The fact that you "need" to make a stock purchase quickly is concerning. Borrowing on a "hot tip" can be a quick road to financial disaster. Make sure you have done your own research and are comfortable with extending yourself in this manner. If that stock drops in value you would have to make up the shortfall in collateral.

In our small town area we are working with an IPO for an ethanol plant. We have developed a stock loan that is 65% and up to 100% w/ other collateral. If the stock you are purchasing is for something along those line than there are banks who can work with you. Other than that I know very little.

Hope that helps

I understand your concerns about the hasty decision. My options are deeply discounted and I'm leaving my employer. If I don't do it now I lose them.

When banks grant a loan on this type of thing do they usually require that I pay it back in monthly payments like a car loan, or are there other arrangements available? Also, how long can I get on the term for this type of loan?

Your best source of information is the bank you will be asking for the loan. While stock loans are somewhat regulated, each bank has different criteria. Here we can only speculate and not be able to tell you the specifics of the loan you would receive.

The other "option" you can consider is only good if you want the cash and don't want to keep the stock (or just keep part of the stock). Brokerages can perform a "cashless" option exercise for you. They have to coordinate it with the issuer, your current employer. Essentially, they advance a short term loan to you to purchase the options, after arranging delivery from the issuer. They immediately sell the stock anou get the proceeds less a fee. They can sometimes set it up to only sell enough to pay for the balance you will keep. Since your options are deeply discounted that may very well work out for you. There should be enough profit in sale of part of the stock to pay for the purchase of the balance.

Kaybee - that's exactly what I did when I cashed in my options (although the dollar amount involved was embarrasinly small.)

I don't know if they finally changed the tax laws, but one situation to consider is if you exercise the options, you may be taxed on the gain at the time of exercise. But if the stock drops later on, you may be stuck paying tax on a gain you never got to enjoy. By cashing out right away, you may forgo any future increases, but you may also avoid the tax risk.

You should really seek the advice of a tax and finacial planning professional.

Good point, Bonnie. It is important to understand the tax implications.

Thanks. I might not be able to take advantage of the cashless purchase that you described because the option agreement requires me to hold the stock for at least 9 months. So my loan needs to be at least that long. Actually I'd like to have a loan that is much longer because I couldn't afford monthly installments on that amount if I had to pay it all they way down in only 9-12 months. While I fully intended to exercise them, I wasn't financial ready yet. But now I'm forced to act or kiss them goodbye.

Then I am just plumb out of ideas. Your best bet may be to find a lender who will take the stock and equity in your home and give you the money. That holding period would make it hard for a lot of folks to use the options.

I imagine you already have a new job. In some cases, if you are still negotiating, you can ask that the new place make the loss of the options up to you in a signing bonus or other compensation.